Is Hellenic Telecommunications Organization S.A.'s (ATH:HTO) Latest Stock Performance A Reflection Of Its Financial Health?

Hellenic Telecommunications Organization's (ATH:HTO) stock is up by a considerable 17% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Hellenic Telecommunications Organization's ROE in this article.

ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Put another way, it reveals the company's success at turning shareholder investments into profits.

Check out our latest analysis for Hellenic Telecommunications Organization

How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Hellenic Telecommunications Organization is:

30% = €545m ÷ €1.8b (Based on the trailing twelve months to June 2024).

The 'return' is the profit over the last twelve months. That means that for every €1 worth of shareholders' equity, the company generated €0.30 in profit.

Why Is ROE Important For Earnings Growth?

We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

A Side By Side comparison of Hellenic Telecommunications Organization's Earnings Growth And 30% ROE

To begin with, Hellenic Telecommunications Organization has a pretty high ROE which is interesting. Secondly, even when compared to the industry average of 11% the company's ROE is quite impressive. Probably as a result of this, Hellenic Telecommunications Organization was able to see a decent net income growth of 7.8% over the last five years.

As a next step, we compared Hellenic Telecommunications Organization's net income growth with the industry and found that the company has a similar growth figure when compared with the industry average growth rate of 8.8% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. Is HTO fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Hellenic Telecommunications Organization Making Efficient Use Of Its Profits?

The high three-year median payout ratio of 60% (or a retention ratio of 40%) for Hellenic Telecommunications Organization suggests that the company's growth wasn't really hampered despite it returning most of its income to its shareholders.

Besides, Hellenic Telecommunications Organization has been paying dividends over a period of nine years. This shows that the company is committed to sharing profits with its shareholders. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 54%. Accordingly, forecasts suggest that Hellenic Telecommunications Organization's future ROE will be 29% which is again, similar to the current ROE.

Conclusion

Overall, we are quite pleased with Hellenic Telecommunications Organization's performance. We are particularly impressed by the considerable earnings growth posted by the company, which was likely backed by its high ROE. While the company is paying out most of its earnings as dividends, it has been able to grow its earnings in spite of it, so that's probably a good sign. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.